Deluxe: How Luxury Lost Its Luster (32 page)

Surprisingly, most companies didn’t see this coming and didn’t do much about it until the late
1990
s. Some players still shrug. Louis Vuitton designer Marc Jacobs told me that he thinks counterfeiting is “fantastic,” adding, “as long as I’ve been here, everything that we have done has been copied…We hope to create a product that is desirable.” Prada CEO Patrizio Bertelli calls it part of “the game of fashion,” and said, “I would be more worried if my product
wasn’t
copied.” They’re not the ones who need to worry: today, most luxury companies have extensive legal departments that focus only on intellectual property theft, as it is called. They also have investigators on the ground, working the markets, chasing down leads on illegal factories, in China as well as in London, New York, Los Angeles, and other distribution centers. Louis Vuitton, one of the world’s most copied brands, has forty lawyers in-house and
250
outside private investigators like Kris Buckner, and spends approximately €
15
million ($
18
.
1
million) each year fighting counterfeiting, despite Marc Jacobs’s view. In
2004
, Vuitton conducted twenty raids a day worldwide and put about thousand counterfeiters in jail. Companies that are active in raids, that seize merchandise and sue, definitely see a drop in their brand’s fakes on the market. But the minute they ease up, the fake products, like a red tide, come right back. “This is a cost of business,” McDonald told me. “Advertising is working. You’ll never see something counterfeited of a brand you’ve never heard of.”

B
ACK IN THE 1970S
,
before the advent of outlet malls, clothing wholesalers on Santee Street, a main thoroughfare in the garment district of downtown Los Angeles, began to sell leftovers out of the back-alley entrances to their stores. It was such a success that the owners redesigned their showrooms, creating a discount boutique in the back that opened onto the alley, and Santee Alley, as it was dubbed, became a bona fide retail street, several blocks long, open seven days a week.

In the
1980
s, a surge of Korean immigrants arrived in Los Angeles and found the bazaar-like atmosphere of Santee Alley similar to the markets in Seoul. They began to take over leases and expand the businesses. Their business approach was the polar opposite of the cost-conscious American model: the Koreans manufactured clothes such as T-shirts and jeans fast, sold them cheap, and didn’t worry about profit-and-loss figures. Profit came in volume. Today many leaseholders on Santee Alley are Korean, and they never quibble about rent, which is now approaching the levels of Rodeo Drive.

Slowly, counterfeit luxury brand items such as watches and handbags began to appear on the store shelves. At first, the fakes were easy to spot: they were cheaply made and lacked finesse. But as time went on, the quality got better and the demand increased. Soon Santee Alley was not only a cheap bazaar; it was L.A.’s premier counterfeit market. Today, twenty to thirty thousand people descend on Santee Alley daily to buy everything from inexpensive children’s clothes to fake Chanel sunglasses, making it the third most visited destination in Los Angeles after Universal Studios and Venice Beach.

Counterfeit designer T-shirts and simple dresses are usually manufactured by Vietnamese or Latin American immigrants in nearby Riverside and Orange counties because turnaround is a mere matter of days. Some knockoff handbags are locally made, too: Santee Alley vendors go to neighboring Main Street, buy generic bags for a couple of dollars, stamp on a logo or sew in a label, and sell them for $
20
. But the good bags with the logo integrated into the design—as well as sunglasses, watches, and high-design garments like Burberry raincoats—are imported, primarily from China. Often you find a mix of both locally made cheapos and imported top-quality items within one shop, like the one run by a mild-mannered fifty-ish Indian vendor who, when we visited in
2004
, was on probation. “I kept telling him to stop selling but he didn’t,” said Buckner as we walked into the shop.

By the looks of things, he still hadn’t. On the shelves sat faux Vuitton-style bags stamped with colorful hearts rather than LVs and Chanel Cambon-style purses with a bold “OC” instead of the house’s signature interlocking “CC,” making them technically not fake. Next to them, however, were a couple of black leather handbags with regular Gucci labels on the front. Realizing he’d been caught, the shopkeeper quickly reached over and peeled off the Gucci labels; they were stuck on like Post-its. Buckner gave him a firm warning. “I treat all these guys with respect because it’s nothing personal,” Buckner told me. “These vendors shouldn’t be selling counterfeits—what’s wrong is wrong, what’s right is right—but it doesn’t make them bad people. The networks behind them are the slimiest.”

When we walked out, Buckner spied one of his informants, who beckoned us into a discreet entry around the corner. He had just witnessed our visit and told Buckner that the “OC” is really a “CC”—that half the O peels off, leaving a Chanel-like double-C logo. “They do it like that to get it through U.S. Customs,” he explained.

Then he showed Buckner a piece of fake Louis Vuitton hardware.

“You know where it’s coming from?” Buckner asked.

“Yeah.”

“I’ll call you later.”

The informant slid the gold fixture back into his shirt pocket.

Santee Alley attracts everyone. “Judges, prosecutors, defense attorneys shop here,” Buckner said. “Affluent people from Newport Beach.” A vendor named Peter concurs. “The whole world passes by here,” he told me. “I sold some shirts to Chaka Khan three days ago. The police chief convention is in town and all the wives are down here buying Louis Vuitton.”

Peter is a tall, handsome African-American in his early thirties. His shop is actually a one-by-three-foot sidewalk space in front of a store. He sells T-shirts with prized logos—when we visited, it was Abercrombie & Fitch. Most vendors in Santee Alley pay about $
12
,
000
a month for their shops, then sublet the sidewalk to folks like Peter for about $
1
,
000
a square foot, in cash. It’s often on the sidewalk that you’ll find the most blatant counterfeit goods, like Louis Vuitton and Chanel handbags and Gucci and Armani sunglasses.

Buckner told me that Peter was “the smartest man in Santee Alley.” Peter just laughed. “I just know how to stay out of trouble,” he said. A native of Rancho Cucamonga, a sprawling suburb on the road to Las Vegas, Peter started selling in Santee Alley in the early
1990
s when he was a student at UCLA and needed some quick cash. He first sold fake handbags, but after three years switched to T-shirts. “When you are selling handbags, you are selling somebody else’s designs,” he reasoned. “I like designing things myself.” He studied street fashion and would pick up on a new trend even before the main brands did. He printed “Tommy Sport” T-shirts and other products before Tommy Hilfiger trademarked it and made a killing.

In his fourteen years in Santee Alley, Peter has seen the market evolve. “What they used to sell here was garbage,” he said. “Now you can get the same quality as in Nordstrom, because the consumer is smarter.” I asked how much he earns. “I’m doing all right,” he answered. When I asked him if he had any qualms about what he does, he shrugged. “Wherever there’s a demand, you’ll always have someone taking the chance.”

What I realized from my tour is that people don’t believe there is a difference between real and fake anymore. Bernard Arnault’s marketing plan had worked: consumers don’t buy luxury branded items for what they
are,
but for what they
represent.
And good fakes—the kind that can pass for real—now represent socially the same thing as real. I remember an American woman I saw one morning in the Peninsula Hotel in Hong Kong. She was a chic New Yorker in her fifties, well dressed in a designer pantsuit, good jewelry, and Chanel sunglasses, and obviously wealthy enough to pay $
500
a night at one of the world’s top hotels. She walked up to the concierge desk and asked its chief, “Where can I buy a good fake Rolex? You know, a really good fake.” The concierge looked at her incredulously and said he didn’t know. I looked at her and wondered, “Are the sunglasses fake, too?”

O
NE WEEK AFTER
my tour in Santee Alley, I boarded a train in the Hung Hom station in Hong Kong for a two-hour ride north to Guangzhou—which was known in the West as Canton—a city of eight million and the capital city of Guangdong Province. I was escorted by a luxury brand intellectual property expert and a local counterfeit private investigator. Once past the seemingly endless forest of high-rise towers of Hong Kong, we crossed the lush plains of the Pearl River delta into Guangdong Province, where fourteen million Chinese live on four thousand square miles, making it one of the most densely populated areas in the world. There remain some collective rice and duck farms, and we spied a few farmers out in the fields, working the fertile land with their oxen. But as we approached the city of Guangzhou, the farms gave way to enormous blocklike factories, hundreds of them, where workers make leather shoes, toys, clothing—everything. “This is why this region is called ‘the Factory of the World,’” the expert told me.

Guangzhou has served an important international port for centuries. Arab merchants who traveled to China on the Silk Road in the seventh century settled in Guangzhou and turned the city into a trade center. In the sixteenth century, the Portuguese colonized nearby Macau and made it a base for foreigners who wanted to do business in China. The Portuguese, Dutch, French, British, and American traders would sail up the Pearl River from Macau to sell opium and buy Chinese porcelain, silk, and tea. In
1839
, the First Opium War broke out when Qing Emperor Dao Guang shut down the opium trade. In the early twentieth century, it was the center for much of the republican movement that brought down the Qing Dynasty. The republic’s first president, Sun Yat-sen, was from the region, and he was the head of Guangzhou’s Kuomintang, the nationalist party.

During the first thirty years of communism, Mao Tse-tung neglected Guangdong, and the once prosperous and flourishing province became one of the poorest in the country. As Jasper Becker noted in his book,
The Chinese
, the state’s investment per capita in Guangdong was the lowest in all of China. When Deng Xiaoping came to power in
1978
, all that changed. Deng wanted to use Guangdong as a laboratory for his economic reforms. The following year, he changed the national one-child-per-family rule to two children in Guangdong and told the provincial government that it could keep its tax revenue rather than contribute to the central government. Factories sprouted across the delta like rice plants. As the demand for counterfeit versions of luxury goods in the West increased, legitimate manufacturers in the region began to produce fakes at night and on holidays. Eventually, workshops opened in Guangzhou solely to produce fakes. Today, Guangzhou is the capital of China’s counterfeiting business.

Fighting counterfeiting in Guangzhou is not easy for several reasons. First, China does not have a history of intellectual property ownership. Confucius was the first to democratize education, and he encouraged the works of great scholars to be copied in order to spread knowledge to all classes. To further complicate the issue, China’s communist leaders declared that the state—not individuals, not companies or corporations—owned all property. Since the economic reforms in
1978
, the government has slowly embraced the notion of intellectual property ownership. The first patent and trademark laws were enacted in the early
1980
s. “You have this strong heritage for many centuries [of copying], and then suddenly everyone tells you to stop,” says Frederick Mostert, past president of the International Trademark Association. “It’s a real cultural dilemma.”

Anticounterfeiting was one of the subjects discussed during the U.S.-China Joint Commission on Commerce and Trade in Washington in April
2004
. In response, the Chinese government announced the formation of a task force to tackle the problem, which implemented two new initiatives: it lengthened the prison terms of convicted counterfeit vendors to three years in order to deter counterfeiting, and it shut down the famed Silk Alley counterfeit market in Beijing to make way for a new five-story shopping mall that would ban counterfeit sellers. Both initiatives failed. When the new mall opened three months later, the international counterfeit syndicates moved in and took over the shops formerly occupied by small-time dealers. One vendor who squawked to the police was shot dead gangland-style. A month later, the U.S. trade representative declared that despite the Chinese government’s efforts, intellectual property “infringements remain at epidemic levels,” and that China’s overall piracy rates have not dropped since the country’s
2001
entry into the World Trade Organization.

In an effort to raise awareness in China, martial-arts movie star Jackie Chan starred in an international public awareness campaign called “Fakes Cost More.” During the June
2005
press conference that kicked off the campaign, Chan fought off a group of faux assailants wearing Jackie Chan masks, attacked a staged counterfeiting stall with a chain saw, and ripped the fake Gucci, Armani, and Versace clothes off an actor dressed up as a tourist. “The ease with which authentic works can be copied in the digital world and the instant wealth it brings has given new rise to the second oldest profession in the world: piracy,” Chan said. “It is easy to copy but difficult to create.”

That was evident the moment we walked into Xinxing, the central wholesale market for counterfeit leather goods, just down the road from the domestic train station in Guangzhou. The market is a series of big warehouses with air-conditioned stalls filled with fake Louis Vuitton, Gucci, Chanel, Fendi, and Burberry products. One warehouse is for the Grade AA product—fakes that look so good it’s hard for a non-expert to tell they aren’t real. “Counterfeiters take the original item and do a three-D scan of it,” the expert explained to me. “The process produces perfect copies of patterns.”